REGISTRATION RIGHTS AGREEMENT
Exhibit 4.2
This REGISTRATION RIGHTS AGREEMENT (“Agreement”), dated as of March 3, 2006, is made
and entered into by and between CanArgo Energy Corporation, a Delaware corporation
(“Company”) and the Purchasers listed on Schedule A attached hereto (collectively, the
“Purchasers”).
RECITALS
A. Purchasers have acquired and Company has issued (i) US$13,000,000.00 in aggregate principal
amount of its Senior Subordinated Convertible Guaranteed Notes due September 1, 2009 (“Company
Notes”) and (ii) warrants to purchase up to 13 million shares of the Company’s common stock,
par value $.10 per share (“Common Stock”) expiring on the second anniversary of the date
hereof (“Warrants”) pursuant to the Note and Warrant Purchase Agreement (“Purchase
Agreement”) of even date herewith;
B. Pursuant to the terms of the Purchase Agreement, the Purchasers acquired rights to convert
the Company Notes into shares of Common Stock in accordance with the terms of the Purchase
Agreement and the Company Notes (a “Conversion”) and pursuant to the terms of the Warrants,
the Purchasers acquired the right to purchase shares of Common Stock upon exercise thereof in
accordance with the terms of the Warrants (an “Exercise”);
C. Upon the closing of a Conversion or an Exercise, the Company shall authorize and issue to
such Purchasers electing so to convert their Company Notes or to exercise their Warrants,
respectively, one or more certificates representing the applicable number of shares of Common Stock
issuable upon such Conversion of the Company Notes (“Conversion Stock”) or such Exercise of
the Warrants (“Warrant Shares”);
D. The Company has agreed to provide Purchasers with certain rights with respect to all shares
of Conversion Stock issuable upon Conversion and all Warrant Shares issuable upon Exercise to
register such shares under the Securities Act (as hereinafter defined) for resale. All shares of
Conversion Stock and Warrant Shares issued as of the date of this Agreement or issued or issuable
at any time by the Company to Purchasers upon Conversion of the Company Notes or Exercise of the
Warrants , other than shares which cease to be Restricted Securities (as hereinafter defined),
shall be referred to for the purposes of this Agreement as the “Registrable Securities”) ;
and
E. For the avoidance of doubt, nothing in this Agreement or in the Purchase Agreement or the
Company Notes or Warrants shall obligate the Company to register any securities of Tethys Petroleum
Investments Limited, which may be acquired upon conversion of the Company Notes, under the
Securities Act or any other foreign or domestic securities laws.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged and confirmed, the parties, intending to
be legally bound, agree as follows:
ARTICLE 1
REGISTRATION RIGHTS AND PROCEDURES
Section 1.1 Definitions.
(a) As used in this Agreement, the following terms shall have the meanings:
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(i) “Affiliate” of any specified Person means any other Person who directly, or
indirectly through one or more intermediaries, is in control of, is controlled by, or is
under common control with, such specified Person. For purposes of this definition, control
of a Person means the power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities, ownership or
otherwise; and the terms “controlling” and “controlled” have the respective meanings
correlative to the foregoing.
(ii) “Commission” means the United States Securities and Exchange Commission.
(iii) “Common Stock” has the meaning ascribed thereto in the Recitals.
(iv) “Conversion” has the meaning ascribed thereto in the Recitals.
(v) “Conversion Stock” has the meaning ascribed thereto in the Recitals.
(vi) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder, or any similar successor statute.
(vii) “Exercise” has the meaning ascribed thereto in the Recitals.
(viii) “Purchaser” has the meaning ascribed thereto in the Recitals and includes each
transferee or assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 4.2 hereof.
(ix) “Person” means any individual, partnership, corporation, limited liability
company, joint stock company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
(x) “Prospectus” means the prospectus (including, without limitation, any preliminary
prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act,
including any prospectus that discloses information previously omitted from a prospectus
filed as part of an effective registration statement in reliance on Rule 430A under the
Securities Act) included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement and by all other amendments and
supplements to such prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the Company under
the Exchange Act and incorporated by reference therein.
(xi) “Purchase Agreement” has the meaning ascribed thereto in the Recitals.
(xii) “Registrable Securities” has the meaning ascribed thereto in the Recitals.
(xiii) “Registration Statement” means a registration statement of the Company filed on
Form S-1 or S-3 or such other appropriate form under the Securities Act providing for the
registration of, and the sale of Registrable Securities, including without limitation any
Registration Statement providing for the registration of, and sale on a continuous or
delayed basis by the holders of, the Registrable Securities pursuant to Rule 415 under the
Securities Act, including the Prospectus contained therein and forming a part thereof, any
amendments to such
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registration statement and supplements to such Prospectus, and all exhibits and other
material incorporated by reference in such registration statement and Prospectus.
(xiv) “Restricted Security” means any share of Common Stock issued upon Conversion of
the Company Notes or Exercise of the Warrants or held by any Person, except for any such
share that (i) has been registered pursuant to an effective Registration Statement under the
Securities Act and sold in a manner contemplated by the Prospectus included in the
Registration Statement, (ii) has been freely transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is
freely transferable, together with all other Restricted Securities in one transaction,
pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision
thereto), or (iii) otherwise has been transferred and a new share of Common Stock not
subject to any transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
(xv) “Required Majority” means the Holders of a majority of the number of Registrable
Securities then outstanding (for purposes of calculation, Company Notes shall be treated as
if they have been converted into Registrable Securities).
(xvi) “Securities Act” means the Securities Act of 1933, as amended, and the rules and,
regulations of the Commission thereunder, or any similar successor statute.
(xvii) “Warrants” has the meaning ascribed thereto in the Recitals.
(xviii) “Warrant Shares” has the meaning ascribed thereto in the Recitals.
(b) All capitalized terms used and not defined herein have the respective meaning assigned to
them in the Purchase Agreement.
Section 1.2 Registration Rights.
(a) Piggyback Registration Rights. Subject to the terms and conditions of this
Agreement, if the Company intends to file or desires to file a Registration Statement providing for
the offering or resale of (i) Common Stock or (ii) any Registrable Securities (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock
or any other shares of capital stock of the Company issuable upon exercise of employee share
options or in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another Person or any
transaction with respect to which Rule 145 (or any successor provision) under the Securities Act
applies), the Company will notify the holder or holders of the Registrable Securities
(“Holders”) of the proposed filing at least 30 days prior to the filing of the Registration
Statement, and will afford each Holder an opportunity to include in such Registration Statement all
or any part of the Registrable Securities then held by such Holder. If any Holder desires to
include in any such Registration Statement all or part of the Registrable Securities held by such
Holder, such Holder shall, within 15 days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice, if the Holder has not already done
so, shall inform the Company that the Holder has elected to convert some or all of its Company
Notes pursuant to Section 11.7 of the Purchase Agreement, and of the number of Registrable
Securities such Holder wishes to include in such Registration Statement.
(b) Demand Registration Rights.
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(i) Requests for Registration. Subject to Section 1.2(b)(ii), the Holders may
request registration on a Registration Statement under the Securities Act of all or part of their
Registrable Securities, as the case may be (a “Demand Registration”). Within ten days
after receipt of any request pursuant to this Section 1.2(b)(i), the Company shall give
written notice of such request to all other Holders and will include in such registration all
Registrable Securities with respect to which the Company has received written requests for
inclusion therein within 21 days after the Company’s notice has been given.
(ii) Limits on the Number of Demand Registrations. The Holders may request only five
(5) Demand Registrations and not more than one Demand Registration in any twelve month period. A
registration will not count as a Demand Registration hereunder (x) (i) until it has become
effective and (ii) unless the Holders of Registrable Securities requested to be included in such
Demand Registration are able to register and sell all of the Registrable Securities requested to be
included in such registration (provided, if such registration is made on Form S-1, such
Registration Statement need only be effective for a period of 90 consecutive days) or (y) if the
Company shall sell any Common Stock in the registration resulting from such Demand Registration (in
which case the request for a Demand Registration shall be deemed a request for a Piggyback
Registration pursuant to Section 1.2(a)). The Company will pay all registration expenses in
connection with (x) any Demand Registration requested hereunder and (y) any registration initiated
as a Demand Registration requested hereunder which subsequently becomes other than a Demand
Registration. The Company shall have no obligation to maintain the effectiveness of any
registration statement on Form S-1 (or any successor form thereto) for a period of greater than 90
consecutive days, but all other Registration Statements shall remain in effect until the earlier of
two years or the date all the Registrable Securities cease to be Restricted Securities .
(c) Registration Statement on Form S-3. The Company represents and warrants that
it currently is not eligible to use Form S-3 and does not meet all applicable requirements for its
use. The Company shall use its commercially reasonable efforts, including but not limited to
following the requirements of the rules, regulations and instructions promulgated by the Commission
regarding Form S-3, necessary to establish the Company’s eligibility to file a Registration
Statement on Form S-3 or any successor thereto. The Company shall use its commercially reasonable
efforts not take any willful and discretionary action that will limit, impair or otherwise prevent
it from being able to use Form S-3 or any successor thereto once eligibility for such use has been
established.
(d) Filing. The Company shall use all commercially reasonable efforts to file a
Registration Statement on Form S-3 with respect to all Conversion Stock and Warrant Shares,
including Conversion Stock issuable upon Conversion of Company Notes and Warrant Shares issuable
upon Exercise of the Warrants with the Commission by December 31, 2006. In the event the Company
is not eligible to file a Registration Statement on Form S-3, the Company shall file a Registration
Statement on Form S-1 no later than December 31, 2006.
(e) Effectiveness of Registration Statement. The Company shall use all
commercially reasonable efforts to: (a) have the Registration Statement declared effective by
the Commission no later than 120 days after the filing thereof and to maintain such effectiveness
as provided herein; and (b) subject to the provisions of Section 1.2(b)(ii), prepare and file with
the Commission such amendments and supplements to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective with respect to any Registrable
Securities, until the earlier of two years or the date all the Registrable Securities cease to be
Restricted Securities.
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Section 1.3 Information and Copies.
(a) The Company shall furnish to each Holder electing to include its Common Stock in the
Registration Statement such number of copies of the Registration Statement, each amendment and
supplement thereto, the Prospectus, and such other documents as such Holder may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by it.
(b) The Company shall promptly notify each Purchaser whose Registrable Securities are included
in the Registration Statement of the happening of any event as a result of which the Prospectus
contains an untrue statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances under which it is made and shall use commercially reasonable efforts to prepare and
file with the Commission, and promptly notify such Purchasers of the filing of, a supplement to
such Prospectus or an amendment to the Registration Statement so that, as thereafter delivered to
the purchasers of Registrable Securities, such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which they were made and
in the case of an amendment to the Registration Statement, use reasonable best efforts to cause it
to become effective as soon as possible. Each Purchaser shall promptly notify the Company of the
happening of any event applicable to it, as a result of which the Prospectus contains an untrue
statement of a material fact or omits to state any material fact stated therein or necessary to
make the statements therein in relation to such Purchaser not misleading in light of the
circumstances under which it is made. Upon receipt of any notice from the Company, or provision of
any notice to the Company by any Purchaser, of the happening of any event of the kind described
above, such Purchaser will forthwith discontinue disposition of Registrable Securities pursuant to
the Registration Statement until such Purchaser’s receipt of the copies of the supplemented or
amended Prospectus, or until such Purchaser is advised in writing by the Company that the use of
the Prospectus may be resumed.
(c) The Company shall make available for inspection by each Purchaser, any underwriter
participating in any disposition pursuant to the Registration Statement, and any attorney,
accountant, or other agent retained by any Purchaser or any underwriter, all financial and other
records of the Company (reasonably requested), the Company’s applicable corporate documents and
contracts as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors, employees, and independent accountants
to supply all information reasonably requested by any such Purchaser, as well as any underwriter,
attorney, accountant, or agent in connection with the Registration Statement; provided, however,
that each Purchaser agrees that information obtained by such Purchaser as a result of such
inspections which constitutes confidential information is subject to the confidentiality provisions
of Section 22 of the Purchase Agreement and is deemed confidential shall not be used by
such Purchaser as the basis for any market transaction in the Company’s securities unless and until
such information is made generally available to the public, and each Purchaser shall use its best
efforts to cause any attorney, accountant, or agent retained by such Purchaser to keep confidential
any such information.
(d) In the event of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or of any order suspending or preventing the use of any related Prospectus
or suspending the qualification of any Common Stock included in the Registration Statement for sale
in any jurisdiction, the Company will promptly notify Purchasers of such and will use reasonable
efforts to obtain the withdrawal of such order.
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Section 1.4 Listing of Registrable Securities. The Company shall cause all Registrable
Securities to be listed on each securities exchange or other quotation service on which the Common
Stock is then listed.
Section 1.5 Underwritten Offering. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall include such
information in the notice given pursuant to Section 1.2. In such event, the right of each
Holder to registration pursuant to Section 1.2 shall be conditioned upon such Holder
agreeing to participate in such underwriting and upon the inclusion of the Registrable Securities
in the underwriting to the extent provided herein. Each Holder electing to include its Registrable
Securities in such registration shall (together with the Company and other participating
shareholders) enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of this Section
1.6, if the underwriter shall, in good faith, advise the Company in writing that the offering
contemplated thereby will be materially adversely affected by the inclusion of Registrable
Securities, then the Company shall so advise such Holder and the other participating shareholders,
and the number of shares of Registrable Securities and Common Stock (collectively,
“Underwritten Securities”) that may be included in the registration and underwriting shall
be allocated first to the Company, if it is participating in such registration and underwriting,
second, pro rata among such Holders and other parties having registration rights previously granted
by the Company, and, third, pro rata among the other participating shareholders, if any, in each
case in proportion, as nearly as practicable, to the respective amounts of Underwritten Securities
held by such Holder and participating shareholders at the time of filing the Registration
Statement. The Company may only exercise this right once within any twelve-month period without
the consent of the Required Majority.
If such Holder disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
Section 1.6 Market Stand Off Agreement. By electing to include Registrable Shares in any
registration pursuant to Section 1.2, each Holder so electing shall be deemed to have
agreed, provided such Registrable Securities are included in the Registration Statement, not to
effect any public sale or distribution of securities of the Company of the same or similar class or
classes of the securities included in the Registration Statement or any securities convertible into
or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule
144A under the Securities Act, following the filing of a Registration Statement by the Company with
the Commission in connection with a public offering of its securities and continuing until 90 days
(or such longer period as the underwriter may request in connection with an underwritten offering
but not to exceed 180 days) following the date such Registration Statement is declared effective by
the Commission and in connection therewith such Holder agrees to execute and deliver such documents
or instruments as the Company may reasonably request evidencing this agreement.
Section 1.7 Nature of Sale. Notwithstanding any other provision of this Agreement, Common
Stock shall only be treated as Registrable Securities if and so long as it remains a Restricted
Security.
Section 1.8 Reports under the Exchange Act. With a view to making available to the Holders
the benefits of Rule 144 promulgated under the Securities Act, or any other similar rule or
regulation of the Commission that may at any time permit the Holders to sell securities of the
Company to the public without registration (“Rule 144”), the Company agrees to use its
commercially reasonable efforts to:
(a) make and keep public information available, as those terms are understood and defined in
Rule 144;
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(b) file with the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and Exchange Act;
(c) furnish to each Holder, so long as such Holder owns Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, and (ii) a copy of the most recent annual
or periodic report of the Company and such other reports and documents so filed by the Company,
unless such reports and documents are publicly available on XXXXX; and
(d) such other information as may be reasonably requested to permit such Holder to sell such
securities pursuant to Rule 144 without registration unless such information is publicly available
on XXXXX.
Section 1.9 Other Securities. Nothing in this Agreement shall prevent the Company from
registering securities other than Common Stock by filing a Registration Statement with the
Commission.
ARTICLE 2
PURCHASER’S RIGHTS AND UNDERTAKINGS
Section 2.1 Rights. Purchasers shall have the absolute right to exercise or refrain from
exercising any right or rights they may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation under this
Agreement, and Purchasers shall not incur any liability to any other holder of any of the Company’s
securities as a result of exercising or refraining from exercising any such right or rights.
Section 2.2 Suspension of Sales. If any Registrable Securities are included in a Registration
Statement pursuant to the terms of this Agreement, Purchasers will not (until further notice)
effect sales thereof after receipt of written notice from the Company of the occurrence of an event
specified in such notice in order to permit the Company to correct or update the Registration
Statement or Prospectus.
Section 2.3 Compliance. If any Registrable Securities are being registered in any
registration pursuant to this Agreement, Purchasers will comply with all anti-stabilization,
manipulation, and similar provisions of Section 10 of the Exchange Act, and any rules
promulgated thereunder by the Commission and, at the Company’s request, will execute and deliver to
the Company and to any underwriter participating in such offering an appropriate agreement to such
effect.
Section 2.4 Termination of Effectiveness. Following the end of the period during which the
Company is obligated to keep the Registration Statement current and effective as described herein,
to the extent Purchasers’ Registrable Securities are included in the Registration Statement,
Purchasers shall discontinue sales thereof pursuant to such Registration Statement, unless
Purchasers have received written notice from the Company of its intention to continue the
effectiveness of such Registration Statement with respect to any of such securities which remain
unsold.
Section 2.5 Furnish Information. It shall be a condition precedent to the Company’s
obligations to take any action pursuant to this Agreement with respect to the Registrable
Securities that Purchasers shall furnish to the Company such information regarding Purchasers, the
Registrable Securities held by Purchasers, and the intended method of disposition of such
securities and such other information as shall be required to effect the registration of
Purchasers’ Registrable Securities or as the Company shall otherwise reasonably request. The
obligations of the Company under this Agreement with respect to any Purchaser shall be suspended
unless and until such Purchaser complies with this Section
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2.5. In connection with Purchasers’ obligation to provide information the Company may
request and the Purchasers agree to complete, execute and deliver to the Company a Stockholders
Questionnaire providing the information required to register their Registrable Securities under the
Securities Act for resale.
Section 2.6 Underwritten Registration. Purchasers may not participate in any registration
hereunder which is underwritten unless Purchasers: (a) agree to sell their securities on the basis
provided in any customary underwriting arrangements approved by the Company; (b) complete and
execute all customary questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting arrangements; and (c)
agree to pay their pro rata share of all underwriting discounts and commissions and their own
expenses (including, without limitation, counsel fees).
Section 2.7 Delay of Registration. Purchasers shall not have any right to obtain or seek an
injunction restraining or otherwise delaying the preparation of, or declaration of the
effectiveness of, any Registration Statement initiated in accordance with the terms of this
Agreement if such injunction is the result of any controversy that might arise with respect to the
interpretation or implementation of these provisions.
ARTICLE 3
INDEMNIFICATION
Section 3.1 Indemnification by the Company. The Company shall indemnify and hold harmless,
with respect to any Registration Statement filed by it pursuant to this Agreement, to the fullest
extent permitted by law, each Purchaser, as well as each Purchaser’s agents, representatives and
Affiliates (collectively, the “Purchaser Indemnified Parties”) against all losses, claims,
damages, liabilities, and expenses joint or several (including reasonable fees of counsel and any
amounts paid in settlement effected with the Company’s consent, which consent shall not be
unreasonably withheld) (collectively, “Losses”) to which any such Purchaser Indemnified
Party may become subject under the Securities Act, the Exchange Act, any other federal law, any
state or common law, any rule or regulation promulgated thereunder, or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) are caused
by (a) any untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement in which such Registrable Securities were included as contemplated hereby or
the omission or alleged omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading, (b) any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus, together with the documents incorporated by reference therein (as
amended or supplemented if the Company shall have filed with the Commission any amendment thereof
or supplement thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (c) any violation by the Company
of the Securities Act, the Exchange Act, any other federal law, any state or common law, or any
rule or regulation promulgated thereunder in connection with any such registration;
provided, however, that the Company shall not be liable to any such Purchaser
Indemnified Party in any such case to the extent that any such Loss (or action or proceeding,
whether commenced or threatened, in respect thereof) arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in such Registration
Statement or amendment thereof or supplement thereto or in any such Prospectus in reliance upon and
in conformity with written information furnished to the Company by or on behalf of any such
Purchaser Indemnified Party relating to such Purchaser Indemnified Party for use in the preparation
thereof; and provided further, that the Company shall not be liable to any such
Purchaser Indemnified Party with
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respect to any Prospectus to the extent that any such Loss of such Purchaser Indemnified Party
results from the fact that such Purchaser Indemnified Party sold Registrable Securities to a person
to whom there was not sent or given, at or before the written confirmation of such sale, a copy of
the Prospectus (excluding documents incorporated by reference) or of the Prospectus as then amended
or supplemented (excluding documents incorporated by reference) if the Company previously furnished
copies thereof to such Purchaser Indemnified Party in compliance with this Agreement and the Loss
of such Purchaser Indemnified Party results from an untrue statement or omission of a material fact
contained in such Prospectus which was subsequently corrected in the Prospectus (or the Prospectus
as amended or supplemented). Such indemnity and reimbursement of expenses and obligations shall
remain in full force and effect regardless of any investigation made by or on behalf of the
Purchaser Indemnified Parties and shall survive the transfer of such securities by such Purchaser
Indemnified Parties.
Section 3.2 Indemnification by Purchaser. Each Purchaser shall indemnify and hold harmless,
to the fullest extent permitted by law, the Company, its directors, officers, employees, and
agents, and each person who controls the Company (within the meaning of the Securities Act)
(collectively, “Company Indemnified Parties”) against all Losses to which any Company
Indemnified Party may become subject under the Securities Act, the Exchange Act, any other federal
law, any state or common law, any rule or regulation promulgated thereunder, or otherwise, insofar
as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) are
caused by (a) any untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement in which such Registrable Securities were included as contemplated hereby or
the omission or alleged omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading, (b) any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus, together with the documents expressly incorporated by reference
therein (as amended or supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading, and in the cases
described in clauses (a) and (b) of this Section 3.2, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information furnished in writing
by or on behalf of such Purchaser relating to such Purchaser for use in the preparation of the
documents described in clauses (a) and (b), (c) any violation by such Purchaser of the Securities
Act, the Exchange Act, any other federal law, any state or common law, or any rule or regulation
promulgated thereunder applicable to such Purchaser and relating to action of or inaction by such
Purchaser in connection with any such registration, and (d) with respect to any Prospectus, the
fact that such Purchaser sold Registrable Securities to a person to whom there was not sent or
given, at or before the written confirmation of such sale, a copy of any subsequent Prospectus
(excluding the documents incorporated by reference) or of the Prospectus as then amended or
supplemented (excluding documents incorporated by reference) if the Company has previously
furnished copies thereof to such Purchaser in compliance with this Agreement and the Loss of such
Company Indemnified Party results from an untrue statement or omission of a material fact relating
to information provided by such Purchaser contained in such Prospectus which was corrected in the
Prospectus (or the Prospectus as amended or supplemented). Such indemnity and reimbursement of
expenses and obligations shall remain in full force and effect regardless of any investigation made
by or on behalf of the Company Indemnified Parties and shall survive the transfer of securities by
such Purchaser Indemnified Parties.
Section 3.3 Conduct of Indemnification Proceedings. Promptly after receipt by an identified
party hereunder of written notice of the commencement of any action, suit, proceeding,
investigation, or threat thereof with respect to which a claim for indemnification may be made
pursuant hereto, such indemnified party shall, if a claim in respect thereto is to be made against
an indemnifying party, give written notice to the indemnifying party of the threat or commencement
thereof; provided, however, that
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the failure to so notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. If any such claim or action referred to hereunder is
brought against any indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party (which counsel shall
not, except with the consent of the indemnified party, be counsel to the indemnifying party). The
indemnifying party shall not be liable to an indemnified party hereunder for any legal expenses of
counsel or any other expenses incurred by such indemnified party in connection with the defense
thereof, unless the indemnifying party has failed to assume the defense of such claim or action or
to employ counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnified party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party represented by such counsel
in such action. The indemnifying party shall not be required to indemnify the indemnified party
with respect to any amounts paid in settlement of any action, proceeding, or investigation entered
into without the written consent of the indemnifying party, which consent shall not be unreasonably
withheld. No indemnifying party shall consent to the entry of any judgment or enter into any
settlement without the consent of the indemnified party unless (a) such judgment or settlement does
not impose any obligation or liability upon the indemnified party other than the execution,
delivery, or approval thereof, and (b) such judgment or settlement includes as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party of a full release
and discharge from all liability in respect of such claim and a full release of all persons that
may be entitled to or obligated to provide indemnification or contribution under this Article.
Section 3.4 Contribution. If the indemnification provided for herein is unavailable to or
insufficient to hold harmless an indemnified party hereunder, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result of the Losses (or
actions or proceedings in respect thereof) referred to herein in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and the indemnified party
on the other in connection with the statements, omissions, actions, or inactions which resulted in
such Losses. The relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party, any action or inaction by any such
party, and the parties’ relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement, omission, action, or inaction. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
Promptly after receipt by an indemnified party hereunder of written notice of the commencement of
any action, suit, proceeding, investigation, or threat thereof with respect to which a claim for
contribution may be made against an indemnifying party hereunder, such indemnified party shall, if
a claim for contribution in respect thereto is to be made against an indemnifying party, give
written notice to the indemnifying party of the commencement thereof (if the notice specified
herein has not been given with respect to such action); provided, however, that the
failure to so notify the indemnifying party shall not relieve it from any obligation to provide
contribution which it may have to any indemnified party hereunder, except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice. The parties hereto agree
that it would not be just and equitable if contribution pursuant hereto were determined by pro rata
allocation or by any other method of allocation which does not take account of equitable
considerations referred to herein.
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If indemnification is available hereunder, the indemnifying parties shall indemnify each
indemnified party to the fullest extent provided herein, without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable consideration provided for
herein. The provisions hereof shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract shall remain in full
force and effect regardless of any investigation made by or on behalf of any indemnified party, and
shall survive the transfer of securities by any such party.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Termination. The obligations under Article 1 shall terminate on the
earlier of the date on which all Registrable Securities have been sold pursuant to a Registration
Statement or all Conversion Stock or Warrant Shares are no longer Restricted Securities.
Purchasers whose shares of Common Stock are sold pursuant to a Registration Statement shall
reasonably inform the Company of sales of such shares and shall provide all such other information
as the Company may reasonably request in order to comply with the requirements of the Securities
Act and the rules and regulations promulgated thereunder, including, without limitation, Regulation
S-K.
Section 4.2 Assignment; Successors and Assigns. Purchasers may assign their rights hereunder
with respect to any permitted assignee all or any portion of the Registrable Securities provided
that (a) the Company is furnished with written notice of the name and address of the assignee and
the securities with respect to which such rights are being assigned and all such other information
as may be reasonably requested by the Company in order for the Company to be able to comply with
applicable requirements of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, and (b) the Company shall have the right to require any holder of
Registrable Securities to execute a counterpart of this Agreement as a condition to such holder’s
right to claim any rights hereunder. This Agreement and all provisions thereof shall be binding
upon, inure to the benefit of, and are enforceable by the parties hereto and their respective
successors and permitted assigns.
Section 4.3 Notices. All notices, requests, and other communications hereunder shall be in
writing and will be deemed to have been duly given and received (a) when personally delivered, (b)
when sent by facsimile upon confirmation of receipt, (c) four business days after the day on which
the same has been delivered prepaid to a nationally recognized courier service, or (d) ten business
days after the deposit in the United States mail, registered or certified, return receipt
requested, postage prepaid, in each case addressed as follows:
(a) if to the Company: then at CanArgo Energy Corporation, X.X. Xxx 000, Xx. Xxxxx Xxxx,
Xxxxxxxx, Xxxxxxx Xxxxxxx, Attn: Corporate Secretary, facsimile number: x00 0000 000000 (with a
copy to McGrigors, Xxxxxxx Xxxxx, 00 Xxxxxxxxxx Xxxxxx, Xxxxxxx X0 0XX, XX, Attn: Xxxxxxx Xxxxxx,
Esq., facsimile number x00 000 000 0000); or
(b) if addressed to a Purchaser, then at the address set forth on Schedule A attached hereto
opposite such Purchaser’s name.
Purchasers or the Company may agree to accept notices and other communications to it hereunder
by electronic communications pursuant to procedures reasonably approved by it; provided that
approval of such procedures may be limited to particular notices or communications. Any party
hereto from time to time may change its address, facsimile number, or other information for the
purpose of notices to that party by giving notice specifying such change to the other parties
hereto.
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Section 4.4 Public Announcements. Except as otherwise required by law, Purchasers shall not
issue any press release or make any other public announcement with respect to the transactions
contemplated hereby without the approval of the Company, which approval shall not be unreasonably
withheld or delayed.
Section 4.5 Governing Law; Jurisdiction. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of the State of New
York excluding choice of law principles of the law of such State that would require the application
of the laws of a jurisdiction other than such State. For the purposes of any action or proceeding
involving this Agreement or any other agreement or document referred to herein or therein, the
Company hereby, and shall cause its subsidiaries to, expressly submits to the nonexclusive
jurisdiction of all federal and state courts sitting in the Borough of Manhattan, City and State of
New York and consents that any order, process, notice of motion or other application to or by any
of said courts or a judge thereof may be served within or without such court’s jurisdiction by
registered mail or by personal service, provided that a reasonable time for appearance is
allowed. The Company hereby, and shall cause its subsidiaries to, irrevocably waives any objection
that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any other agreement or document referred to herein or
therein brought in any federal or state court sitting in the City and State of New York, and hereby
further irrevocably waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 4.6 No Third Party Beneficiary. This Agreement shall not confer any rights or
remedies upon any person other than the parties hereto and their respective successors and
permitted assigns.
Section 4.7 Severability. In the event that any provision of this Agreement or the
application of any provision hereof is declared to be illegal, invalid, or otherwise unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 4.8 Headings. The headings in this Agreement are for convenience of reference only
and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction,
or effect.
Section 4.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one instrument. Each
counterpart may consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
Section 4.10 Entire Agreement. This Agreement embodies the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 4.11 Amendment; Waiver. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, without the written consent of the Company
and a Required Majority of Holders.
Section 4.12 Further Assurances. Each party shall cooperate and take such action as may be
reasonably requested by another party in order to carry out the provisions and purposes of this
Agreement and the transactions contemplated hereby.
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(Signature pages follow)
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by the undersigned,
thereto duly authorized, as of the date first set forth above.
| CanArgo Energy Corporation | ||||||||
| By: | ||||||||
| Its | ||||||||
| PURCHASERS: | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
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SCHEDULE A
| NAME OF PURCHASER | ADDRESS | |
